The flow of technology to India has been comparatively limited because of the type of industrial development strategy. Upto July 1991, India was following a very restrictive policy towards foreign technology. Import of technology was considered on merits if substantial exports were guaranteed over a period of 5 to 10 years and if there were reasonable proposals for such exports. Technical collaborations were to be considered on the basis of annual royalty payments which were linked with the value of actual production. The percentage of royalty was dependent on the nature of technology.
Whenever possible the payment of fixed amount of royalty per unit of production was preferred. Royalty payments were limited to a period of 5 years. In the eighties India entered into a large number of technology collaboration agreements. It was considered that the government should take active measures to facilitate the transfer of technology. In the pre-liberalization era, technology agreements needed prior approval.
On 24th July 1991, the Government of India liberalized its policy. The industrial policy statement emphasized that there is a great need for promoting an industrial environment where the acquisition of technological capability receives priority. Towards that end, government interference with commercial technology relationships of Indian entrepreneurs with foreign technology suppliers was unnecessary. As viewed by the government, in the fast changing world of technology the relationship between the suppliers and users of technology must be a continuous one whereas governmental interference on a case-to-case basis involved in ordinate delays and fastened uncertainty. The Indian entrepreneur had come of age and no longer needed bureaucratic clearances of technology relationships.
Thus, Indian companies will hereafter, be free to negotiate the terms of technology transfer with their foreign counterparts according to their own commercial judgement within the specified parameters. This is expected to induce industry to develop indigenous competence for the efficient absorption of foreign technology and invest more in research and development (R&D) due to greater competitive pressure. The New Industrial Policy has allowed import of technology with automatic approval. Technology agreements do not need prior approval. Following are the important provisions of government policy regarding foreign technology agreements:
- Automatic permission will be given for foreign technology agreements in high priority industries upto a lump-sum payment of Rs. 1 crore, 5% royalty for domestic sales and 8% for exports, subject to total payments of 8% of sales over a 10 years period from date of agreement or 7 years from commencement of production. The prescribed royalty rates are net of taxes and will be calculated according to standard procedures.
- In respect of industries other than those in Annex. III, automatic permission will be given subject to the same guidelines as above if no free foreign exchange is required for any payments.
- All other proposals will need specific approval under the general procedures in force.
- No permission will be necessary for hiring of foreign technicians, foreign testing of indigenously developed technologies. Payment may be made from blanket permits or free foreign exchange according to RBI guidelines.
As a result of liberalized policy the number of technology agreements increased from 661 in the year 1991 to 982 in the year 1995. The number further decreased to 595 in 1998. The largest number of technology agreements was made with USA in the year 1998 followed by Germany, Japan and U.K. Following are the main limitations in transfer of technology to Indian firms:
- Indian firms do not make necessary homework before entering into the negotiations for transfer of technology. Effective purchase of technology can be done only when a buyer prepares sufficiently.
- Indian firms do not build a team of experts to enable the management to negotiate an effective transfer of technology agreements. They do not take recourse to design conference. Thus there is lack of teamwork.
- There is a tendency to accept restrictive business clauses. Restrictive business clauses ensure imposition by the seller on the buyer to adhere to certain practices which are obstructive ineffective functioning of buyers. Restrictive business clauses include ban on exports, area wise restrictions for exports, buying machinery and equipment from the sources specified by the seller of technology etc.
- There is no research and development effort by the Indian firms. As a result the seller of technology is not willing to provide research and development facility to the buyer. There have been a number of cases of repetitive import of technology.
- Very often there are many loopholes in the technology collaboration agreements such as lack of performance guarantee, lack of differentiation of technology from the changes of brand name and trade mark.